Cable Tech

Europe Catches M&A Fever

Consolidation fever has gripped the European carrier market, and more major mergers and acquisitions are expected in 2005. That's the view of the European telecom team at Standard & Poor’s.

This week's news that Neuf Telecom and Groupe Cegetel are merging is just the latest in a string of significant carrier consolidation announcements made in the past six months or so (see French Carriers Announce Merger).

The wave of consolidation, which was preceded by an M&A desert, is set to continue into 2005, reckons Guy Deslondes, S&P's head of European telecom (see S&P Reports on European Telcos). He notes that, in general, the M&A process is still quite lengthy, as operators spend more time examining the books of their prospective targets. There are always exceptions to the rule, though: "Telefónica's purchase of Cesky Telecom was a bit swift," says the S&P man (see Eurobites: Incumbents Splash Their Cash).

Here are some of the big deals of the last six months:

So what new deals are brewing?

Brits to tie the knot?
A merger between the U.K.'s two cable operators, NTL Group Ltd. (Nasdaq: NTLI) and Telewest Communications Networks plc (Nasdaq: TLWT) -- which both offer triple-play packages of broadband access, traditional voice, and TV services in the U.K., but in different regions -- has been mooted for at least two or three years.

Both companies seem to have put their financial woes behind them. They are registering broadband customer gains, offering new services such as video on demand and business Ethernet, often with the same suppliers. See:

The two operators now have a combined market capitalization of more than $10 billion, with NTL boasting the slightly higher value at present, with a market cap of $5.34 billion.

Deslondes believes there is "little doubt that the U.K. cable operators will merge, and that will pose a big threat to BT."

That threat comes in the form of a combined 4.8 million residential customers, of which nearly 2 million take broadband access services, which gives them about 30 percent of the total U.K. broadband market. Their combined revenues in the first quarter of this year were £855 million (US$1.6 billion), and both recorded a net profit.

To reach the point where they could merge, NTL has been cutting costs, refinancing its debt, and selling non-core assets, such as its broadcasting masts and its cable business in Ireland, to help pay off that debt (see NTL Sells Irish Cable Operator, NTL Sells Masts for £1.27B, NTL Cuts 1,500 Jobs, and NTL Proposes Refinancing).

Rumors in the City of London name Goldman Sachs & Co. as NTL's banker in the merger talks, while Telewest was said to be meeting with prospective bankers in New York this week. Both operators refuse to comment on any matters regarding a potential merger.

Mike Cansfield, an analyst at consultancy Ovum Ltd., believes the merger "makes irrefutable logic." In a research note this week, Cansfield says the two companies are "more likely to be successful than apart" as the race heats up for triple-play customers. "Furthermore their networks complement rather than compete," he adds.

Continental shifts
Other deals that Deslondes believes could close in 2005 include an acquisition of Italian carrier Wind Telecomunicazioni SpA, which owner Enel SpA is keen to sell, but only at the right price (see Eurobites: Wind, Reign & Sunny Spells and Enel Eyes Bid for Wind).

Moving west, to Spain, the S&P team says a merger between two of Telefónica's rivals, Grupo Auna and ONO (CableEuropa S.A.U.) is "much expected."

S&P suggests there may be potential M&A deals in the growing Russian market as well, while incumbent Swisscom AG (NYSE: SCM) is also earmarked as a potential acquirer. It failed to cement a marriage with nextdoor neighbor Telekom Austria AG (NYSE: TKA; Vienna: TKA) last year, and now both are looking for other partners, though there have been rumors that the Swiss carrier has been trying to reignite flames between the two national operators (see No Merger for Euro Carriers and Eurobites: Who's Eatin' Whom).

Meanwhile, Belgacom (Euronext: BELG) also looks as if it fancies a cross-border raid, though for alternative Dutch service provider Versatel Telecom International N.V. rather than fellow incumbent KPN Telecom NV (NYSE: KPN).

In addition to the major done deals and impending mergers mentioned above, Europe has also witnessed a number of less prominent acquisitions. These include:

— Ray Le Maistre, International News Editor, Light Reading

Sign In